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Scottish Manufacturing slips following slump in oil prices

THE plunge in oil prices has been flagged as a possible reason for an unexpected tumble in Scottish manufacturers' domestic orders in the latest three months.

This sharp fall in orders from within the UK was revealed yesterday with publication of the Confederation of British Industry's latest quarterly survey of manufacturing activity in Scotland.

The survey also reveals the first fall in Scottish manufacturing output volumes in a year, as well as a dip in numbers employed in the sector, during the three months to January.

And it shows that Scottish manufacturers' export orders rose in the three months to January, in spite of weakness in some economies in the key eurozone market-place. However, this increase was not as strong as had been anticipated.

Looking ahead, Scottish manufacturers are forecasting a marginal fall in domestic orders in the coming three months. They anticipate further growth in export orders.

The results for Scotland contrasted with the CBI's industrial trends report for the UK as a whole, which was also published yesterday and showed strong growth in domestic orders.

Asked for his view on the reasons for the much weaker picture in the Scottish manufacturing sector, CBI economist Alpesh Paleja replied: "The only thing I can think of is...the falling oil price. It affects Scotland in a different way."

Mr Paleja cited the importance of the oil and gas sector to Aberdeen, and to the broader Scottish economy.

He believed that the fall in the oil price might be affecting the broader Scottish manufacturing sector, by hitting business confidence more generally.

Mr Paleja said: "On a wider perspective, it is hitting business confidence because businesses are concerned about the knock-on impact on demand."

He highlighted the fact that, in the UK as a whole, the fall in oil prices was "net positive" for businesses and consumers in terms of reducing their costs.

Mr Paleja contrasted this situation with that in Scotland, where, he said, the effect was "more disparate".

Addressing the general weakness of the Scottish survey results, Mr Paleja said: "It does remain to be seen whether this is a blip or the start of something a bit more concerning."

Subtracting the proportion of Scottish manufacturers reporting a rise in domestic order volumes from that suffering a decline, a net 22 per cent reported a drop.

This was much worse than the balance of four per cent reporting a fall in the previous quarterly survey, and contrasted with Scottish manufacturers' expectations of a rise in domestic orders during the three months to January.

The survey signals that, in the latest three months, manufacturers north of the Border experienced their sharpest drop in domestic orders since April 2013.

A balance of nine per cent of Scottish manufacturers reported a fall in total new orders in the three months to January, the worst reading since July 2013. In the three months to July, a net 43 per cent had reported a rise in total new orders.

A net six per cent of Scottish manufacturers reported a rise in export orders during the three months to January. This signalled the first rise in export orders in three quarters.

A balance of five per cent of manufacturers north of the Border reported a fall in output volumes during the three months to January. In the three months to October, a net 18 per cent had experienced a rise in output.